Food prices keep rising

Until Feb, 2011, food prices have become even higher than during crisis in 2008.

The most important threat seems to be the highly uncertainty of output prices, as well as production yield.

Right now my idea is how high food prices affect labor supply at household level depending on land ownership: how land constraints affect changes in labor responses at extensive margin and intensive margin? Not sure if this is the most interesting issue with this story though.

Macroecon environment seems to play an important role too.

“Increased vulnerability is being triggered by an apparent increase in extreme weather events and a dependence on new exporting zones, where harvest outcomes are prone to weather vagaries; a greater reliance on international trade to meet food needs at the expense of stock holding; a growing demand for food commodities from other sectors, especially energy; and a faster transmission of macroeconomic factors onto commodity markets, including exchange rate volatility and monetary policy shifts, such as changing interest rate regimes.

What is more, financial firms are progressively investing in commodity derivatives as a portfolio hedge since returns in the commodity sector seem uncorrelated with returns to other assets. While this ‘financialisation of commodities’ is generally not viewed as the source of price turbulence, evidence suggests that trading in futures markets may have amplified volatility in the short term.”

Full story is here.

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